BRITISH ECONOMY OVER THE LAST TWO YEARS

British Economy over the Last Two Years

British Economy over the Last Two Years

Question 1

The Bank of England or BoE is one of the oldest central banks in the world. It was established in 1694 under the Bank of England, and became renowned as the 'Old Lady', or the Old Lady of Thread needle Street, where it is located in London. It was nationalized after the end of World War II, and plays a key function in monetary principle, managing the national reserves and assisting to maintain the stability of the British banking and financial systems.(Gilchrist, 2008, 1341)

It designed to assist maintain cost stability, support the policies of Her Majesty's government, issue banks notes, command the cash supply and circulation, act as banker for the government, act as lender of last resort for banks, and manage banking regulation and oversight.(Kaminsky, 2007, 473)

UK Monetary Policy is set by the Bank of England. One of Gordon Brown's first acts as Chancellor of the Exchequer in 1997 was to give the BoE self-reliance in setting rates, which previously had to be approved by the Chancellor.

 

UK Monetary Policy, 2008 - 2010

As of Q1 2009, the Bank of England has already slash Interest Rates to a historic reduced of 1.0 percent, with the consensus believing this will fall to 0.5 per cent.

Further measures are probably required, and this will encompass quantities easing, in other words publishing more money. Up to 150 billion GBP in new cash is anticipated to be propelled into the finances in 2009.

The Bank of England's balance sheet will probably extend to augment as it shores up more banks and financial institutions with both capital injections and loans, and as it acquires government Treasury bills to assist finance the stimulus package will attempting to restrict the congesting out of private borrowers.(Eichengreen, 2008, 52)

 

UK Fiscal Policy, 2008 - 2010

During Gordon Brown's stint as Chancellor, the Labor Party officially adopted the 'Golden Rule' of fiscal policy.  The Golden Rule states that over the full financial cycle, the government should scrounge to invest only for future needs. Current needs should be contacted by tax revenues.(Kaminsky, 2007, 473) This should allow for stable finances as characterised by the ratios of public sector snare worth, liability and present expenditure to national income.

In conjunction with the Golden Rule, the UK government also seeks to pursue the Sustainable Investment Rule, which should hold national liability at a careful grade actually set at 40 percent of GDP.

By the end of 2008 estimated public liability had already risen to 42 percent, and could rise to 70 percent of GDP by 2010, meaning that the Sustainable Investment Rule has been broken. The justification is that a severe recession needs Keynesian stimulus to revive it, and that balancing the books should only be sought one time the financial recovery begins.

The unaligned actions taken by the Monetary Policy Committee (MPC) have lead to the greater stability of cost levels in several ...